11/10/2022 by Hedvig Heyerdahl Moser and Anne Therese Gullberg
The National Budget 2023: Tax rises
The Norwegian Government presented their proposal for the National Budget for 2023 on October 6th. In the context of the current geopolitical situation, the Government forewarned a strict budget.
In response to rising inflation and interest rates, the Government proposed a significant reduction of oil wealth spending. The subsequent loss in income has been suggested to be compensated by a combination of budget cuts and tax rises. The tax increases are primarily affecting the business sector.
The objective of the budget proposal is to guide Norway through times of regional instability and political unrest. The budget is therefore focused on strengthening the national defence, in addition to supporting businesses and households by compensating for increased electricity costs.
The combination of regional war, increased inflation and rising energy prices have challenged the budget process and forced the Government to make tough priorities. Along with tax increases, the Government have reduced spending by postponing major projects.
44.8 billion tax increase
In order to finance expenditures in mentioned cases, the Government have decided to increase taxes by NOK 44.8 billion. This includes the already announced NOK 33 billion tax increase on aquaculture and renewable energy. The resource rent tax targets business profiting from natural resources, such as aquaculture, hydropower and wind power.
The Government also propose a partial reversion of the petroleum incentive package introduced during the coronavirus pandemic. The proposal reduces the uplift rate, a special tax deduction, from 17.69% to 12.4%
Furthermore, the Government have suggested that the rate of employer’s national insurance contributions should be increased by 5% for all incomes above 750 000 NOK. The tax, which is differentiated across regions and sectors will, in some cases, lead to an increase in rate from 14,1% to 19.1%.
The Road Ahead
The Labour Party-led Government is a minority Government and needs support from the opposition in order to get their proposal approved. In order to secure a majority, the Government needs seven additional votes. This offers an opportunity for external agencies to influence the end result.
The Government will first negotiate with the Socialist Left Party, which the leader has already expressed dissatisfaction related to the lack of climate action and distributive policies. The taxes might therefore increase further throughout the negotiation process. The Social Left Party have suggested further emissions for cut and tax rises for the oil sector and parts of the transport sector.
Should the Government fail to agree with the Socialist Left Party, they would have to turn to the remaining opposition parties in the Parliament. In the budget process, there is also a possibility of securing a majority case by case.
Timeline for adopting the National Budget for 2023
The budget is now in the hands of Parliament. As part of the budget process in Parliament, the Standing Committees invite to open hearings to accommodate for input from the wider public.
Budget hearings in the Standing Committees are held from 17 to 28 October. However, the deadline to attend e.g. the hearing in the Standing Committee on Finance and Economic Affairs is set to Tuesday 11 October at noon. Organisations and companies can participate, but only a selected few are invited to present their input in person. Those allowed to join must first apply to the committee and then be prepared to summarise their message in two minutes and in a short, written note.
The budget negotiations with the Socialist Left Party will start as soon as the Socialist Left have put forward their alternative National Budget. This will give a proper overview of their priorities in the negotiations.
After the budget hearings, the Standing Committee on Finance must adopt the framework in the budget, which means that the committee commits to how much money can be used in total for 20 different expenditure categories, for instance transport and communication, environment, health, and education and research.
The Standing Committee on Finance will submit its recommendation to the Parliament no later than 20 November. This deadline could be postponed if the negotiations between the Government and Socialist Left prove to be more demanding than first expected. During the following week, the budget debate takes place in Parliament.
Thereafter, the committees will agree internally on formulating the sector budgets, which will take place within the framework given in the financial recommendation. Everyone who wants to influence the 2023 budget has the last opportunity to present their case to the politicians in this phase.
The deadline for the Parliament to adopt the state budget is expected to be Wednesday 15 December, but this date might be postponed. The last meeting in Parliament in 2022 is Wednesday 21 December. By that date, the National Budget for 2023 must be passed by the Parliament.